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ACCA Strategic Professional · Strategic Business Reporting (International) · Foreign transactions and entities

Kora, a dollar-reporting parent, has a subsidiary with the euro as functional currency. The subsidiary's profit for the year was €600,000, earned evenly through the year. Rates: €1 = $1.10 at the start of the year, $1.20 at the end, and an average of $1.15. What profit is included in the consolidated statement of profit or loss, assuming the average rate is a reasonable approximation?

The profit is $690,000, found by translating €600,000 at the average rate of $1.15. IAS 21 allows an average rate as an approximation of transaction-date rates for income and expenses earned evenly. Using the opening or closing rate would misstate the profit.

  1. A$690,000Correct
  2. B$660,000
  3. C$720,000
  4. D$600,000

Explanation

Income and expenses are translated at transaction-date rates or a reasonable average. 600,000 × 1.15 = $690,000. Using the opening rate gives $660,000 and the closing rate gives $720,000, both wrong rates for profit.

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